Standard Chartered Bank (SCB) expects the Reserve Bank of India to retain repo rate at 8 per cent at the next policy review meet on April 1.
The bank sees no change to the repo rate for the remainder of 2014.
The bank’s view of RBI keeping repo rate unchanged at 8 percent on April 1 is based on the its forecast of headline consumer price index (CPI) inflation in the 9-9.5 percent range by March 2014.
If this headline CPI trajectory holds, we see no need for a rate hike at the April policy meeting”, said a research note released by the foreign bank soon after RBI’s policy announcement.
For the remainder of 2014, however, the risk of further rate hikes cannot be ruled out, the bank said. The market — including SCB — was surprised by the RBI’s unexpected 25 basis point repo rate hike to 8 percent, but this was tempered by assurance of no further tightening in the near term..
“Our core view of no change to the repo rate is based on our forecast of CPI inflation in the 8-8.5 percent range by end fiscal 2014-15. In our view, the RBI will not hesitate to raise rates if the inflation trajectory deviates from that projected”, the SCB note said.
SCB research note also highlighted that headline CPI has now become the RBI’s preferred inflation metric.
Although RBI’s repo rate hike on Tuesday re-established the central bank’s inflation-fighting credentials, surprise at three out of four of Governor Rajan’s policy meetings is making monetary policy less predictable.